China Aviation Oil Singapore Corp Ltd’s Earnings: Revenue Tumbles, But Strong Profit Growth Seen

China Aviation Oil (Singapore) Corp Ltd (SGX: G92) released its fiscal first-quarter earnings (for the three months ended 31 March 2016) yesterday evening.

As a brief background, China Aviation Oil – or CAO for short – is the sole supplier of imported jet fuel to China’s civil aviation industry. It is the largest physical jet fuel trader in the Asia Pacific region and also owns several investments in oil-related assets in China.

With that, let’s dig into the firm’s latest earnings.

Financial highlights

For the reporting quarter, CAO’s revenue slumped 29.6% from US$2.08 billion in the first-quarter of 2015 to US$1.46 billion as a result of lower oil prices and trading volume. But, gross profit soared by 148.5% year-on-year to US$13.2 million, driven by higher trading gains and optimization activities.

Coupled with a big drop in operating expenses and a higher share of results from associates and joint ventures, CAO’s net profit attributable to shareholders managed to climb by 68.2% to US$24.1 million. As a result, the company’s earnings per share stepped up to 2.81 US cents in the reporting quarter compared to 1.67 US cents seen a year ago.

The company also recorded a 244% jump in operating cash flow from US$16.9 million in the first-quarter of 2015 to US$57.5 million in the reporting quarter.

CAO ended 31 March 2016 with a balance sheet that had no borrowings and US$227.9 million in cash and cash equivalents. This is a big improvement from a year ago when there was also zero debt but just US$111 million in cash.

Prospects and valuation

Meng Fanqiu, CAO’s chief executive, had the following comments about the company’s financial performance in the reporting quarter:

“The Group continued to deliver a strong first quarter performance amidst global economic uncertainties and oil market volatilities exacerbated by persistently low oil prices. This is testament to the compelling value proposition offered by CAO’s diversified and international growth platform.

The robust growth of China’s aviation industry continues to underpin CAO’s growth even as we leverage on our core competencies in the global jet fuel market and realise the efficacy of the Group’s global network and integrated supply chain.”

He also gave some insights on CAO’s future plans:

“Going forward, the Group will continue to proactively source for M&A opportunities in line with the Group’s corporate strategy to invest in assets and businesses synergetic to our trading and supply business.

This overarching strategy to achieve vertical integration of the Group’s value chain and build structural advantages across its diversified business platforms will ensure the steady and sustainable growth and development of the its businesses and realise its long-term strategy.”

CAO’s shares closed at S$0.88 yesterday. At that price, the company is valued at 8.3 times trailing earnings.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.